Technology is central to these stock markets

When Nasdaq sneezes, world stock markets catch a cold. What began as a world share market correction based on worries about rising interest rates, soon became a series of fears about how much more technology stocks can achieve after a stellar performance in recent years. Facebook got into trouble for its business model and has spent the last few weeks apologising and seeking to amend its ways to meet its critics at least half way. There have been questions about the low tax rates paid by some of the majors, and worries about semiconductor and other component production rates for popular products.

Meanwhile, back in the real world, people continue to organise their lives using more and more technology. Advertising is moving towards a more-targeted online offer. Many think they are cheaper per potential customer contacted than traditional media. This is one of the keys to the whole success of the social media companies, offering a “free” service to users in return for sending them adverts. This business model is now under the spotlight. Apparently it is permissible to send general adverts to users of these free services, but if you get too smart about it with too much research into each individual there are issues about use of data and privacy. This starts to weaken the commercial proposition. It is that capacity to target adverts to those most likely to respond that has helped to cut the stated costs of effective advertising on line.

Facebook has not done a good job in defending its proposition. It does need to tell its users that if they want a free service it does need to be able to send them ads to pay for it. Watchers of free-to-air TV in a previous age accepted that the price of free service was many ad breaks. It also needs to offer the right reassurances to users over their details. Is it permissible, for example, to send lots of ads about chocolates to someone who is known to like them? Is it not permissible to send ads about the Republicans to someone thought to be inclined that way? This internet media world has not yet defined absolute standards and is struggling to define boundaries and ground rules over how much you can learn about someone from their online habits and what you can then do with that information. Some find targeted ads very helpful. If you like chocolates, being told of the latest offers could assist your shopping. Others find it a bit scary that their smart phone knows what they want when they have not asked for it.

It also gets tied up with the second major criticism of the tech majors, that they now need to mature in their roles as publishers and communicators. In their early days the tech groups were the disruptors – the challengers taking on the might of conventional media. They were cut some slack. They did not have to act as publishers by taking responsibility for the content they allowed to appear on their sites. They came under attack for allowing extremist and terrorist material to circulate. They also came under a more general attack for allowing pornography, tolerance of racial hatred, and incitements to violence to appear. More recently there has been a wide ranging debate about fake news. Is it allowed for people to circulate entirely false rumours on the web? How far can people go in abusing others? What if the line is crossed between free speech and libel? What duty if any does the tech company have as service provider?

The tech publishers are being pushed into taking more responsibility for content, though their defence is they provide a platform but are not themselves endorsing or taking responsibility for the information posted. Clearly they cannot be made to vet every posting themselves and satisfy themselves that everything is accurate and in good taste. Nor can they any longer stand by and refuse to assist world authorities as they seek to stem the tide of hate postings and posts which encourage or facilitate criminal activity. They are seeking to comply with the mood by issuing guidance and ensuring there are blocking systems that can work.

On the other side of the world, the Chinese authorities have adopted a much more centralised model, because there the government wishes to have control of content in a way the West would find unacceptable. The public of the democracies is in two minds about all this. On the one hand many are suspicious of anything which smacks of government or regulator censorship. On the other hand, the public does not want the web to be a wild space promoting criminal activity.

This week we have been reminded what can happen to a traditional business that struggles with this new technology. The Spanish bank Sabadell experienced big problems with its on line banking in the UK with its TSB brand. People were unable to access their accounts properly or to make payments. This will doubtless redouble bank’s reviews of the adequacy of their systems and encourage further spending on getting them right.

The revenue growth of most of the tech majors remains very strong. There are still many new markets to conquer. Amazon continues to make rapid advances with its form of retailing, taking lumps out of the market share of conventional retailers on both sides of the Atlantic. Fintech is coming to the party, with banks wrestling with the need to accommodate the mobile phone. We anticipate continued above average revenue growth for those using these technologies and those creating and supplying them. The user groups will incur increasing costs in policing them, as they are dragged into taking more responsibility for what happens on their sites. Facebook’s latest figures show continuing fast growth in revenues and profits, but also remind us just what a huge worldwide user base it now has. At some point, growth will slow and maybe a challenger emerges that can make it more difficult for Facebook. These technologies will continue to disrupt existing businesses on a large scale, with further transfers of revenue and profit from the old brands and companies that do not adjust, to those who do.

This long bull market in shares needs a bit more progress from technology, as this leading US sector is important to the whole.

The above article was previously published by Charles Stanley on 27th April 2018

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